Lack net zero targets among private firms could lead to CSRD penalties

Nearly half (48) of the world’s largest 100 private companies have not set any emissions reduction targets, meaning they could soon face penalties under new regulations such as Europe’s CSRD and CSDDD.

The latest analysis by climate database Net Zero Tracker (NZT) shows that privately-owned companies are lagging behind their public counterparts when it comes to climate action. While 70% of the top 100 public firms have net zero targets, only 40% of their private equivalents do.

In revenue terms, 72% (US$15 trillion) of the aggregate US$18.1 trillion revenue earned by the largest 100 public firms is covered by net zero targets, compared to just 40% (US$2 trillion) of the US$5 trillion earned by the largest 100 privately-owned companies.

According to the database, the number of private firms with net zero targets grew worryingly slowly over the last 18 months, with just eight new companies having set climate goals between October 2022 and April 2024.

Of the 100 companies assessed, 23 are EU-based and therefore subject to some of the most stringent climate regulations worldwide – yet two of them (France’s E.Leclerc and Spain’s Mercadona, both among Europe’s largest retailers) are yet to set any emissions reduction targets.

Net Zero Tracker: Private firms not ready for CSRD and CSDDD

This is despite the acceleration of climate regulations requiring the world’s largest companies (both public and private) to report on their strategies to reduce emissions. The first reports under Europe’s Corporate Sustainability Reporting Directive (CSRD, which covers about 50,000 firms) are due in early 2025 (though only in 2026 for non-EU companies included in its scope). 

In addition, the soon-to-be-approved Corporate Sustainability Due Diligence Directive (CSDDD) will also require about 5,000 large companies to have a climate transition plan to achieve net zero emissions by 2050. Yet, of the 40 private firms with net zero targets, only eight have transition plans, according to NZT.

Read also: Less than half of sustainability reports are CSRD-compliant

“If ‘sunlight is the best disinfectant’ for climate inaction, most private firms are operating nocturnally — beyond the glare of the civil scrutiny, investor pressure and disclosure requirements faced by listed companies,” warned John Lang, Project Lead, Net Zero Tracker (The Energy and Climate Intelligence Unit).

“New measures being introduced in regions from the EU, to the US and Singapore — some with extra-territorial dimensions, are changing the rules of the game. What goes on in the EU does not stay in the EU. And what goes on in a regulated public company will not stay in a public company: one company’s indirect emissions are another's direct emissions,” he added.

Uneven playing field

The report highlights an increasingly uneven playing field between listed and unlisted companies: while 95% of EU and UK-based public companies with net zero targets have a transition plan, this is only true for 14% of their private counterparts.

“Most private companies are swimming against the net zero tide, while most listed firms are lengthening their stroke in the opposite direction, towards a clean, prosperous future,” said Camilla Hyslop, Data Lead at Net Zero Tracker.

Aware of this divide, the Net Zero Asset Owner Alliance recently updated its target setting protocol to mandate its members to include all private assets in their net zero targets, in a bid to limit the sale of ‘brown assets’ from more scrutinised listed companies into the “less transparent private market”.

Beyond the quantity of targets, the private sector also lags behind public firms on quality: for example, less than half (42%) of those with a target disclose whether they plan to use carbon credits to achieve it.

Amongst high-emitting sectors, the NZT analysis found that listed companies are more than twice as likely to have net zero commitments than private firms – only 34% of which have net zero targets. Additionally, none of the eight private fossil fuel companies assessed has such a target, compared with 76% (13/17) of public companies in this sector.

Read also: Most fossil fuel companies have increased emissions since the Paris Agreement